IRS guidance addresses expanded paid family and medical leave credit

The IRS on Wednesday issued Notice 2026-28, providing guidance on how employers can use the new premium-based method to calculate the expanded credit for paid family and medical leave (PFML) under the 2025 tax law.

H.R. 1, P.L. 119-21, commonly referred to as the OBBBA, made the PFML credit in Sec. 45S permanent and made substantive changes to enhance the credit and expand its availability to a broader group of employers. However, employers must ensure that their written leave policies are compliant during the first full year that the amended Sec. 45S changes are in effect, which is 2026.

H.R. 1 offers greater incentives for businesses to offer up to 12 weeks of paid leave, which employees may use to recover from a serious health condition or to care for certain family members with serious health conditions, the IRS said.

H.R. 1 also made other changes to the credit, including:

• Expanded eligibility: Employers can claim the credit for employees with six months of service and for part-time employees customarily working 20 hours or more per week.
• Expanded coverage: Employers can claim the credit for insurance premiums to provide leave or for wages paid during leave.
• State and local mandates: Employers can count leave provided under state or local mandates toward the eligibility for this federal tax credit, but not toward the credit calculation.

Beginning in 2026, employers can claim the credit for premiums paid for PFML insurance policies, in addition to wages paid during PFML leave. Also beginning this year, more employers providing paid family and medical leave that meets certain requirements can take advantage of a general business tax credit. That credit ranges from 12.5% to 25% of wages paid to qualifying employees for up to 12 weeks of family and medical leave per tax year.

To help employers apply the new premium-based method, the notice addresses how the premium-based method compares to the wage-based method; how to allocate the qualifying premiums; and how to elect between the premium method and the wage method.

Forthcoming proposed regulations will provide broader guidance to address the statute comprehensively and provide certainty to taxpayers, the IRS said.

The guidance issued Wednesday “provides employers with the clarity they need to claim the enhanced credit, supporting American workers, families, and businesses,” Treasury Secretary Scott Bessent said in a news release.

The IRS said it intendsto issue proposed regulations consistent with this guidance.

AICPA advocacy

In a letter to Treasury and the IRS in March, the AICPA requested guidance and offered recommendations to update existing guidance on matters emerging from revisions to Sec. 45S.

The letter requested guidance and offered recommendations in the areas of calculating the credit, employee considerations, and eligible employers. Its recommendations included allowing employers to use both the wage-based and premium-based methods to calculate the credit.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.